AMCON Maintains Stance on Exit Strategy for Arik/Aero Merger

The Asset Management Corporation of Nigeria (AMCON) has once again proposed a strategic consolidation of Aero Contractors (N2, Lagos) and Arik Air (W3, Lagos) into a unified national carrier. This initiative aims to ensure the long-term viability and sustainability of both airlines, which have been under the stewardship of AMCON since their respective receiverships in 2016 and 2017.

 AMCON is considering a potential merger between Arik Air and Aero Contractors, both of which are currently under its receivership, with the objective of establishing a national carrier. However, this proposal may face legal challenges, as reported by BrandIconImage.

AMCON took control of the two airlines due to their significant debt burdens; it owns 60 percent of Aero Contractors but has no equity stake in Arik Air, which it began managing on February 9, 2017, due to financial difficulties.

During the Buhari administration, AMCON suggested to the federal government that these airlines be merged to form a national carrier, but the then Minister of Aviation, Hadi Sirika, rejected the proposal, citing the airlines' debt issues.

The new Managing Director/CEO of AMCON, Gbenga Alade, acknowledged that both airlines are heavily indebted and may struggle to repay their debts, confirming that the merger proposal was previously presented to the former Aviation Minister but was declined.

Additionally, AMCON's attempt to create a new airline, NG Eagle, from the remnants of Arik Air was blocked by the former Minister, as a Federal High Court in Lagos mandated AMCON to provide Arik Air's financial accounts since its takeover in 2017.

The court ruled that transferring Arik Air's assets to NG Eagle Airlines and Super Bravo Limited was not in the airline's best interest.

Despite the court's directive, AMCON has not complied with the order. Nevertheless, many industry experts believe that if appropriate measures are taken, the federal government might reconsider AMCON's proposal to utilize both airlines for establishing a national carrier.

Captain Roland Iyayi, President of Topbrass Aviation Limited and a member of the Airline Operators of Nigeria (AON), stated that merging the two airlines could lead to the creation of a national carrier. He pointed out that Arik and Aero Contractors are already considered national assets since AMCON has acquired their assets and liabilities.

However, he emphasized that the success of such a merger hinges on government agencies thoroughly examining the specifics of the plan. Iyayi noted that the willingness of the original owners to support the merger would largely depend on what AMCON is prepared to offer.

He cautioned that while the concept may appear beneficial at first glance, the finer details could render the entire initiative unappealing.

Is AMCON prepared to provide sufficient funding for the project?

 The decision does not rest with the owners, as those who are already in debt and lack the means to settle their obligations have limited influence. The critical question is whether AMCON can identify individuals or entities capable of supplying the necessary capital. Historically, AMCON has not effectively financed the airlines to enhance their competitiveness.

Is it possible for them to proceed with that now?

These two airlines are currently in bankruptcy, and you aim to combine them into a non-competitive entity. Is a merger feasible? Yes, but it is crucial to grasp the underlying dynamics. They will propose the assets of Aero and Arik for compulsory sale and work towards consolidating the two airlines. At present, both airlines represent liabilities, necessitating government funding to enhance their competitiveness. "Let them develop the specifics," he stated.

An industry expert with extensive knowledge of the two airlines' history indicated that a merger could be feasible if AMCON chooses to pursue it, as the government has the capacity to facilitate such actions.

However, it is crucial to involve the legacy shareholders in the process for the merger to succeed.

The expert noted that if the merger is structured in a way that satisfies all parties involved, the legacy shareholders are unlikely to contest it legally. He cautioned, however, that the perception of government takeover of family-owned businesses could be detrimental.

Therefore, it is essential to secure the legacy shareholders' approval and clearly communicate the advantages they would gain from the merger. He emphasized that merging the airlines to create a national carrier could represent the optimal exit strategy for AMCON.

Furthermore, he acknowledged that while the two airlines could be combined, the management of the merged entity would present its own set of challenges.

He reiterated that AMCON should view the merger primarily as an exit strategy, given its inadequate management of the airlines, particularly Arik Air. He stated, “This is merely an exit strategy; it’s not about generating profit.

What benefit does the owner of Arik Air receive?

The airline is in decline. They acquired the company with numerous aircraft, and I am aware of at least 17 that were operational, but the situation has deteriorated.

If the two airlines merge, we should remain cautiously optimistic, but I must express that Mr. Johnson (Arumemi-Ikhide, founder of Arik Air) has not been treated justly.

AMCON has neglected the aircraft. They took over an airline with valuable assets but no funds and allowed it to fail. AMCON must be held responsible for the irreversible harm inflicted on the airline; there is little recourse for Johnson now.

While AMCON inherited an airline with financial difficulties, it had potential. The company struggled to meet insurance and payroll obligations, yet the 17 aircraft they took over were operational. What has happened to them now?”

An insider has indicated that merging the airlines represents the most viable exit strategy for AMCON, as there appears to be no alternative to divesting from the airlines, which have become a significant burden for the agency.

"However, if they proceed with the merger, it is essential to ensure a thorough cleanup. All creditors must agree to a settlement, signing documents that prevent them from pursuing legal action regarding the company's issues.

The assets and liabilities will be evaluated, and they should consider inviting Qatar Airways or Ethiopian Airlines as technical partners for management," he stated.

Conversely, a stakeholder closely associated with the founding shareholders of Arik Air expressed confusion over AMCON's intentions to merge privately owned entities and assume control, suggesting that this approach may serve to obscure the fraudulent activities perpetrated by officials within the airline. "This discussion lacks substance. They are merely fantasizing.

How can you attempt to take over a privately owned business while simultaneously encouraging investment in Nigeria? The proposed merger seems to be a tactic to conceal the misconduct and fraud that has occurred at Arik Air during the seven years of their management.

In contrast, many prominent airlines worldwide, such as Lufthansa, Alitalia, United Airlines, Ethiopian Airlines, Kenya Airways, South African Airways, and Jet Airways of India, have undergone Chapter 11 bankruptcy without government takeover, receiving support to recover instead."